Will Saudi Arabia Boost Its Oil Output on Dec 5th?

Already, the Western media is fanning speculation of a boost in Saudi oil output at the upcoming OPEC meeting in Abu Dhabi, to placate its military patron in Washington and cool oil prices. Within OPEC, Saudi Arabia is the only producer with any capacity to pump more oil. Saudi oil chief, Ali al-Naimi indicated the kingdom had spare oil capacity of 2.3 million bpd. Total OPEC spare capacity is 3 million bpd.

On Nov 21st, former Saudi oil minister Ahmed Zaki Yamani was engaging in psychological warfare with crude oil traders, attempting to “jawbone” oil prices lower. “If there are no disasters, then oil prices could fall to $75 per barrel after the winter,” he said. Already, crude oil has tumbled to $91.50 /bl on expectations that Riyadh will boost its oil output by 500,000 bpd. How myopic have equity traders become, now that $91 for oil is considered cheap, after seeing $99 last week?

“We observe with great concern the recent escalation of oil prices. But we believe that the world market is well supplied and petroleum inventories are comfortable,” said Saudi Oil Minister Ali al-Naimi, on Nov 28th. Asked if OPEC would agree to a second output increase on Dec 5, Naimi was non-committal, “We need to look at the data, at the information, and then we will decide."

But on Nov 27th, Qatar’s Oil Minister Abdullah al-Attiyah downplayed speculation of a boost in OPEC oil output next month. “My personal belief is that for the moment there is no need to increase production. The market is saturated,” he said. Qatar is one of OPEC’s smallest producers with oil output of around 830,000 bpd, but its final decisions are usually closely aligned with Saudi Arabia.

OPEC blames foreign central banks for printing too much money, which in turn, encourages speculation in the oil market. “Please don’t blame us for $93 oil,” said Qatari Oil Minister Abdullah al-Attiyah on Oct 30th. “The market is increasingly driven by forces beyond OPEC’s control, by geopolitical events and the growing influence of financial investors,” said UAE oil chief Mohammed bin Dhaen al-Hamli.

Riyadh’s ability to keep the crude oil market under wraps, by pumping more oil might fizzle out by late 2008. The International Energy Agency is forecasting that global demand will climb by 2.1 million bpd to 88 million bpd next year. Global supply however, is forecast to rise a scant 200,000 bpd to 85.6 million bpd, leaving a growing shortfall that would exhaust all of Saudi’s spare capacity.

In the short term however, the direction of oil prices might depend upon the Federal Reserve. “Nobody should ask OPEC to do something to lower oil prices, because even if OPEC introduces another 500,000 barrels of oil next month, the price is not going to change unless the dollar corrects itself,” said Iranian Oil Company chief Hojatollah Ghanimifard. “The US Treasury should take measures to strengthen its currency if it doesn’t want oil prices to continue rising,” he said.

There are some voices of sanity in the Federal Reserve network, calling for the US Treasury to halt the reckless debasement of the US dollar. On Nov 27^th, Philly Fed chief Charles Plosser said:

In the current environment, providing insurance through a reduction in the fed funds rate creates its own set of additional risks. A lower funds rate creates a risk that inflation may be exacerbated and inflationary expectations may begin to rise. In some circumstances, lowering interest rates may prolong the painful process of price discovery.

In my view, if the FOMC members already expected some bad economic numbers and had already taken those into account in their outlooks when they set the fed funds rate target, then you should only see policy-makers take action when the outlook changes significantly, not on a few bits and pieces of news.

However, the Philly Fed chief will not have a vote at the Fed’s next meeting on Dec 11^th. His job is to sound hawkish, and create doubts and confusion in the minds of dollar bears and gold bugs.

Clearly, the US Treasury expects a quick fix to the global “Oil Shock” from King Abdullah to cap global oil prices, by boosting Saudi oil output next month. That would permit the Fed to lowers its lending rates and inject more dollars into the hands of Wall Street dealers, while keeping the “crude oil vigilantes” at bay. But a move by the Saudis to knock oil prices lower could also inflict damage on its own stock market, which is just starting to shake off a nasty two year hangover.

The Saudi All Share Index [SASI] has surged 20% over the past five weeks, kicked off by a rush of Gulf capital into the local markets, and the recent boom in oil prices. Saudi Arabia lifted remaining restrictions on citizens from Kuwait, the United Arab Emirates, Qatar, Oman and Bahrain, for trading in the biggest Arab stock exchange, unleashing SASI from its two year slump. But the rally could fizzle out, if king Abdullah knocks oil prices sharply lower. Since an estimated 7,000 princes in Saudi Arabia own 70% of the stock market, most likely, Abdullah will take the best interests of the royal family into account.

Whether the historic rise in crude oil towards $100 /barrel heralds the arrival of “Peak Oil,” or is just a speculative bubble that will deflate, are just some of the tough questions in today’s brave new world of investing.

Comments

[Georealist]

There's not an investible idea in the article....The dollar has been fall at approximately the same time oil has been rising. Oil has also been rising in Euros..Yen..etc. How about this scenario...OPEC can (and various members do) price oil in any currency they please. In fact...Iran has been working exclusive supply agreements with China. The reason oil total output is stuck on 2005 numbers is that they can't produce anymore oil unless OPEC members make infrastructure investments they can't because dollars are already committed to social welfare and eliitist pocketbooks.
So...the OPEC ministers do what these characters are best at..blaming the West for lousy currency..bad habits..blah..blah..bl... What is really happening here is reality running headlong against limits. These OPEC countries know they are running on the far side of productive capacity...and conserving while they figure out something to do with the money coming in that might take them past next years visit to European luxury destinations has frozen their wiggle room.

[jmmx]

THE REPUBLICANS ARE WH0RES TO THE OIL INDUSTRY

From NY Times

WASHINGTON — Pared-down energy legislation cleared the Senate on Thursday by a wide margin after the oil industry and utilities succeeded in stripping out provisions that would have cost them billions of dollars.

The legislation still contains a landmark increase in fuel-economy standards for vehicles and a huge boost for alternative fuels. But a $13 billion tax increase on oil companies and a requirement that utilities nationwide produce 15 percent of their electricity from renewable sources were left on the floor to secure Republican votes for the package.

----

To hell with global warming - the poor oil companies need charity from the american people in order to survive!!!!

The republicans continue to give liberal handouts of taxpayer $$$ to the oil companies which are making record profits!

DISGUSTING!!!!